Week 3 – Work and Trade
Will free trade ever become fair trade?
Much of the countries in the world are capitalist in nature. Even supposedly communist countries, like China, are running on a trade system more capitalist than socialist. The capitalist system is based on the efficiency of division of labour as described by Adam Smith.
In a nutshell, the capitalist system divides up the work that needs to be done, so that each worker becomes a specialist in his own area of work, using his expertise and efficiency to produce products in greater efficiency and quality. But also, it lowers the importance of the individual worker in the line production. Because the work for the individual worker is divided in such small pieces that the worker is easily replaceable. This gives rise to the search for the cheapest labour around. Aided by the increasingly rapid global transportation network, and international trade agreements, this has resulted in multi-national companies basing their factories and production lines in third-world countries where workers can easily be trained and wages are a fraction of what it would cost in first-world countries. This is also the basis of the efficiency model of the capitalist system: get the lowest production costs (including workers’ wages and materials) and sell it at the highest price.
This has resulted in many MNCs relocating their factories in places where labour is much cheaper and the workers skilled enough to handle the machinery. An example is China, where much of the world’s factories and world corporations have their production line there. The main reason is that workers there charge lesser.
The side effect of such a move is that the economy of the third-world country is that the workers will increase their skills and the economy of the country will improve, as a result of the factories relocating there. And the standard of living will rise, and with that, the wage demands of the workers.
What will happen is that with the wage demands and standard of living as well as the economy rising, the third-world country will become a first-world country eventually. Then, the MNCs will move on to the next third-world country where wages are again cheaper. But what will happen when there are no longer third-world countries? Will the mechanics of free trade make it fair for those at the production line? Because workers are demanding around the same pay, so the employers have to take care of the welfare of the workers, to attract them to work. Or will the capitalist and efficient system use the less first-world country workers to work?
Enforcements from the government could also do the trick, as recommended by Adam Smith. This is to ensure that employers do their part to not abuse the workers. Yet then, this is a compromise on the efficiency of the capitalist system, which will not sit well with the employers.
It will be a tough balancing act, to ensure that the capitalist MNCs do not go through the third-world countries to get the cheapest deals, and at the end of it all, to raise the standard of living so high, for nothing, because at the end of it, they’ll just take the cheapest labour again, plunging the world into a vicious cycle of cheap labour and ever rising cost of living.
